Retailers, realty cos form partnerships to beat slowdown

With the current downturn is taking its toll on retail firms and real estate majors alike, both are planning to enter into innovative partnerships in 2009 to shore up revenues. Retail and realty companies are in discussions on revenue sharing-based rental models, at a time when the former is straddled with diminishing footfalls, and the latter, with sluggish demand in the short term.

Vishal Retail is in early stage discussions with some top developers to enter into a revenue sharing-based rental model. Company CEO Ambeek Khemka confirmed the same. However, the company refused to divulge further details. Similarly, Arvind Mills-promoted retail chain, Megamart has signed a few large stores on revenue sharing-based rental model.

Venkatachalapathy, COO, Megamart, said, In the last few months, many mall owners have come forward to give their property on pure revenue sharing basis without any minimum guarantee. Megamart has signed a few large stores on this basis. The interesting part is that there are a few high street property owners who are willing to have revenue sharing models. This only indicates that Indian owners are becoming more open to accept a win-win business model, which can sustain during bad times as well. This is good for our overall retail industry. Meanwhile, Brandhouse Retails too has recently finalised innovative partnerships with two top builders, said Tarun Joshi, its CEO.

According to a McKinsey report, about 10% of the retail stores are under revenue sharing model in the organised retail industry. Samar Shekhawat, vice president, Spencer's Retail explained that since the retail sector has witnessed 30-40% dip in rentals, developers are now ready for flexible rentals, rather than fixed. On the retail-real estate consolidation factor, Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM) commented, 2009 is expected to be a year of consolidation for the Indian retail sector. As a result of adoption of best practices and restructuring of business models by the retailers, organised retail is expected to realign itself to the market conditions and create new areas of growth.